The most important exceptions to this are in California itself, where the flour rate exceeds the wheat rate, except at those points where water competition controls both. The fact, however, that rates are generally the same is not conclusive against the proposition that they might properly somewhat differ. Actual traffic conditions in this country have generally resulted not from any theoretical considerations of right and wrong, but from an attempt on the part of each carrier to subserve its own interest. This was well put by the attorney of the Rock Island System upon the argument. His lines, he stated, believe that a small differential between wheat and flour is proper, but have invariably insisted, as a matter of policy, that the rates should be the same. The Rock Island operates largely in grain-producing sections. If it can induce the grinding of this grain in the section where it is grown, it obtains the haul of the fuel with which it is ground, and it builds up communities which contribute increased traffic, both freight and passenger. For these reasons, he said, it had been the policy of the Rock Island System to insist upon equal rates for wheat and flour and to hold out in the way of millingin-transit privileges whatever inducement it could.

It is evident that the policy of the Southern Pacific Company might well be exactly the contrary. That company is more largely interested in the local development of California; it desires that mills shall be established and maintained there for the same reason that the Rock Island desires their establishment in the wheat fields. The same reasons, therefore, which would lead the Rock Island System to insist upon the same rate for wheat and flour would lead the Southern Pacific System to insist upon a differential in favor of flour. The views of this Commission as to the propriety of such differentials can be best stated by a brief reference to its decisions.

The first case in which this question was ruled upon was Bates v. Pennsylvania Railroad Company, 3 I. C. C. Rep., 435. The complainant was a manufacturer of corn products at Indianapolis, where he had constructed and was operating an extensive plant. The rate upon corn and corn products had for many years been the same from his mill to eastern points of consumption, but the defendant company had reduced that rate 4 cents upon corn without any corresponding reduction upon the product. The complainant contended that this change in the relation between the rate upon corn and that upon corn products would destroy the business which he had developed, and that it was an unjust discrimination against the product and against him in favor of raw material and the eastern manufacturer.

The Commission sustained this contention largely upon the ground that the carrier, having put into effect a certain relation of rates,

could not wantonly disturb it. In the course of the opinion it was said:

The point here is, whether where an existing classification and rate are not shown to operate injuriously to the carrier from a given point, or to give undue advantage to shippers, a change is justifiable that materially injures an important industry and a class of shippers at that point who have there built up the industry in reliance upon the continuation of a previous classification and rate first established and long maintained by the carriers themselves without complaint from any quarter. We think not.

The carrier was ordered to remove the differential.

The next case was that of Kauffman Milling Company v. Missouri Pacific Railway Company et al., 4 I. C. C. Rep., 417. That complaint put in issue the differential between wheat and flour from milling points in Kansas and Missouri to Texas. In this case it appeared that the differential in question or one larger had been in effect for some fifteen years. The Commission allowed the differential to stand largely upon the ground that it was a condition which had been long in existence and which ought not to be unnecessarily disturbed.

This same differential was again attacked in the case Board of Railroad Commissioners v. Atchison, Topeka & Santa Fe Railway Company et al., 8 I. C. C. Rep., 304. The Commission, however, declined to reconsider its holding in the Kauffman case, and said in treating that case as an authority:

When in a case like this the relation in freight rates determines where and how business shall be done, the decisions of this Commission fixing or approving a given relation should only be reversed for imperative reasons. Ten years ago this differential was approved. It may well be that since then money has been invested and industries built up upon the strength of that approval. In the absence of some showing that new conditions have intervened, or that the effects of the original holding have been other than were anticipated, we think that that case must control the disposition of this.

The Commission again declined to interfere with this differential in Mayor and Council of Wichita v. Missouri Pacific Railway Company et al., 10 I. C. C. Rep., 35. It sustained a differential of 5 cents in favor of corn meal from Missouri River points to the Pacific coast, in August, 1905, Re Corn and Corn Products, 11 I. C. C. Rep., 212, to Texas destinations at the same time, Re Corn and Corn Products, 11 I. C. C. Rep., 220.

From a consideration of these cases it is apparent that the Commission has always been of the opinion that there is no inflexible requirement that rates upon grain and the products of the grain should be, under all circumstances, the same, but rather that carriers may, in just regard for their own interest or to meet special conditions, vary those rates within narrow limits. When once the relation has been established, when business has developed and money

has been expended upon the strength of it, then the carrier can not, in the absence of some sufficient reason, change that relation; nor would this Commission direct a change.

In the present case the carriers are anxious to continue this differential. The differential itself has been long in effect and industrial conditions have adapted themselves to it. It is plain that this Commission must hold, unless it is prepared to reverse its past policy, that not only may a differential between wheat and flour to California points be continued, but that it should be continued. The only question is upon the amount of that differential.

So far as a differential of this kind depends upon the extent or value of the service, it is evident that the differential might properly increase as the service increases. So far as it should be limited by its effect upon the distribution of business, it is equally evident that the amount of the differential bears no relation to the amount of the rate. An advantage of 10 cents a barrel on flour is exactly the same at the end of a hundred miles as at the end of one thousand miles.

This Commission in the past has never allowed a differential in excess of 5 cents and there are some expressions in its opinions which rather indicate that this ought to be the extreme limit. When the 5-cent differential on flour was first approved in the Kauffman case the rate was 46 cents. That rate has since fallen to 33 cents. The differential before us is 10 cents per 100 pounds, equivalent to 20 cents per barrel, which, as already remarked, is more than the ordinary net profit in the grinding of a barrel of flour. We feel that this is too large and that the difference in rate ought not to exceed 7 cents. Anything beyond that would, in our opinion, not be justified by transportation conditions, but would be an attempt to equalize commercial conditions, against the propriety of which this Commission has often ruled, and an order to that effect will be issued.

Complaint was made as to the relation of rates from Kansas to Phoenix, Ariz. It appears that the wheat rate is $1, while the flour rate is $1.35. No reason appears for making a larger differential to that point than is made to more distant Pacific coast points, and our order will apply here as well as to California points.

It was claimed by the intervener in argument that the milling-intransit privilege enjoyed by the Kansas miller was an important advantage which the California miller did not possess and which should be equalized in determining the amount of this differential. Neither the tariffs nor the testimony make this matter very clear. It is admitted that the Kansas miller can take the wheat from the country, grind it at his mill, and ship the flour to certain California points for 65 cents per 100 pounds from the country station to final destination of the flour; that is, 65 cents covers the entire movement.

If, now, the California miller, who is said to enjoy no milling-intransit privilege, is obliged to ship the wheat to his mill at 55 cents per 100 pounds and then pay a local rate from the mill to the point of consumption, it is evident that in this is found, or may be found, an important advantage in favor of the Kansas miller.

There is nothing in this record to indicate the extent to which the Kansas miller benefits, if at all, by this circumstance; nor ought we to attempt to equalize this advantage by giving to the California miller an additional advantage in the differential. If, in point of fact, this amounts to a discrimination against the California industry, the discrimination itself should be removed. This wheat and flour is transported by a joint line under a joint rate from Kansas to the final destination in California. Whatever privilege is permitted upon one part of that route should be apparently permitted upon. all of it. However, upon this point we express no opinion, simply calling attention to the fact that in establishing the above differential no account has been taken of the fact that the Kansas miller enjoys a milling-in-transit privilege which is not accorded to his rival upon the Pacific coast.

No. 915.

HOPE COTTON OIL COMPANY

V.

TEXAS & PACIFIC RAILWAY COMPANY AND ST. LOUIS, IRON MOUNTAIN & SOUTHERN RAILWAY COMPANY.

Submitted June 24, 1907. Decided July 8, 1907.

1. Complaint alleged that defendants' joint through rate of 67 cents per 100 pounds on cotton seed, in carloads, from points north of Shreveport, in Louisiana, on the T. & P. Ry. via Texarkana to Hope, Ark., on the St. L., I. M. & S. Ry., is unreasonable and unduly discriminatory, and that a just and reasonable rate would be a through rate equal to the sum of the present local rates in and out of Texarkana, which is 174 cents per 100 pounds. After complaint was filed, defendants put in effect between the points of origin in Louisiana and Hope a joint through rate of 30 cents per 100 pounds on cotton seed in carloads, with a minimum weight of 30,000 pounds per car. Held, upon the record, that the present through rate of 30 cents is unreasonable and that it should not exceed 17 cents, the sum of the locals, with a minimum carload weight of 30,000 pounds.

2. While a rate fixed by a state statute or a state commission is naturally and properly entitled to respectful consideration, it has no greater sanctity, as applied to interstate traffic, than a rate established by a railroad company; and this Commission would not hesitate, upon proper evidence that a rate so established would be unjust either to a carrier or to a shipper, to refuse to accept it as a basis for fixing an interstate rate.

N. Y. Foster for complainant.

Thomas J. Freeman and D. T. Johnson for Texas & Pac. Ry. Co. Martin L. Clardy, James C. Jeffery, and J. E. Williams for St. L., I. M. & S. Ry. Co.

REPORT OF THE COMMISSION.

HARLAN, Commissioner:

The present proceeding is another phase of a controversy, between the complainant and the principal defendant, that was before the Commission on a former occasion. It is another step in the effort of the complainant to secure reasonable rates for the transportation of cotton seed from points in Louisiana on the line of the Texas & Pacific Railway, north of Shreveport, to Hope, Ark., where it is engaged in the manufacture of oil, seed cake, and other products of cotton seed. The facts as they appear on the records of both proceedings are briefly as follows:

Texarkana, although actually in the State of Arkansas, is very near the eastern boundary line of the State of Texas. At that point the tracks of the Texas & Pacific Railway Company join the tracks of the St. Louis, Iron Mountain & Southern Railway Company. The town of Hope lies 33 miles to the north of Texarkana on the line of the last-mentioned road; the points in Louisiana, north of Shreveport, from which the complainant wishes to ship cotton seed to its mill at Hope, are on the line of the Texas & Pacific Railway at an average distance from Texarkana of about 55 miles. The total average haul from the points of origin to the mill at Hope is about 88 miles. And there is no way by which cotton seed from those points can reach the complainant's mill, except over the route formed by the lines of the two defendants through their junction point at Texarkana.

In December, 1903, the local rate on cotton seed, in carloads, from the Louisiana producing points heretofore mentioned to Texarkana was 12 cents per 100 pounds. The local rate from Texarkana to Hope was 5 cents. The two local rates made a combination rate of 174 cents per 100 pounds for the through movement. Upon inquiry of the principal defendant early in December of that year, the purchasing agent of the complainant was informed of these local rates and was also advised that there might be a through rate of even less than the sum of the two local rates. Relying upon these assurances,